Court Deems MassMutual a Fiduciary for Setting Compensation

U.S. District Judge Patti B. Saris, of the U.S. District
Court for the District of Massachusetts, noted in a recent opinion that under
the Employee Retirement Income Security Act (ERISA) a person is a fiduciary
“with respect to a plan to the extent (i) he exercises any discretionary
authority or discretionary control respecting management of such plan or
exercises any authority or control respecting management or disposition of its
assets; (ii) he renders investment advice for a fee or other compensation, direct
or indirect, with respect to any moneys or other property of such plan, or has
any authority or responsibility to do so; or (iii) he has any discretionary
authority or discretionary responsibility in the administration of such plan.”

Saris found MassMutual exercises the discretionary authority
to determine its own compensation by setting separate investment account
management fees (up to a maximum), which in combination with revenue sharing
payments (RSPs), make up the provider’s compensation package. “A reasonable
fact-finder could determine that MassMutual functions as an ERISA functional
fiduciary under subsection (i) to the extent it determines its own
compensation, takes fees out of the separate accounts, and has the discretion
to offset some or all of the RSPs against management fees as its compensation,”
she wrote.

In addition, the plaintiff in the case, Golden Star, Inc.,
argued that MassMutual’s services to the plan (such as sending out checks to
plan members or reinvesting dividends) fall within the definition of
“administration of the plan,” triggering fiduciary status under subsection
(iii) as well. Saris agreed that to the extent MassMutual has discretionary
control over factors governing its fees after entering into its agreement with
Golden Star for administration of the plan, subsection (iii) is implicated as
well.

Because she concluded that MassMutual is a functional
fiduciary under subsections (i) and (iii) when it determines its compensation
package for services provided in the separate investment accounts, Saris said,
she needs not analyze the plaintiffs’ other theories for triggering fiduciary
duties.

The wider case centers on Golden Star’s claims that
MassMutual violated ERISA when it received revenue sharing payments from
third-party mutual funds. Golden Star alleges these payments were essentially
“kickbacks” that constituted prohibited transactions under ERISA, and violated
the fiduciary duties imposed by the statute. MassMutual moved for summary
judgment solely on the question of whether it qualifies as a “functional
fiduciary” within the meaning of ERISA. Saris denied its motion.

The
opinion in Golden Star, Inc. v. MassMutual Life Insurance Company is here.